WindEconomics: Offshore will be cheaper than nuclear

27 November 2014
by David Milborrow

WORLDWIDE: Although no offshore wind farms have been built in the US, 4.9GW of capacity is at an advanced stage of preparation, according to a Navigant Consulting report for the US Department of Energy.

This confirms cost estimates from the Fichtner and Prognos Cost Reduction report (see WindEconomics, October) that early projects are likely to be around 10% higher than those in Europe.

The US Offshore Wind Market and Economic Analysis: 2014 Annual Market Assessment report estimates the cost for a 500MW project in the North Atlantic, commissioned in 2018, to be $2.85 billion, or EUR 4,500/kW (recalculated by Windpower Monthly to exclude interest during construction, to match other cost data quoted). The conceptual project would be in water depths of 20-30 metres, less than 50 kilometres from the servicing port, and around 80km from the grid connection point.

The cost breakdown is similar to that assumed for German projects in the Fichtner and Prognos report, with the turbines accounting for just under 30% of the total and foundation costs just over 20%. Operation and maintenance costs were put at $136/kW a year.

The Navigant report does not give levelised cost of energy figures but, assuming a capacity factor of 38%, a weighted average cost of capital of 8% and a 20-year finance term, the operator would need EUR 180/MWh to make the project viable. Deepwater Wind's Block Island project has secured an energy price of $244/MWh (around EUR 193/MWh).

In comparison, UK offshore projects commissioned in 2018 will be paid around EUR175/MWh for 15 years and German offshore wind EUR190/MWh, but only for eight years. The payment then drops to EUR 35/MWh. International prices for offshore wind are therefore fairly similar.

Construction of the 500MW wind farm is estimated to support around 3,000 job years during the construction period, plus $584 million in local spending over the period. Once operational, it would support 313 jobs and bring $21 million per year to the local economy.

Greater productivity keeps wind on top

In September, Maria van der Hoeven, the executive director of the International Energy Agency (IEA), launched the Solar Electricity Roadmaps 2014 and painted a very optimistic future for photovoltaics, solar thermal electricity and all renewables, noting that "renewables must ramp up to 65% of global electricity production, along with a significant expansion of nuclear power and carbon capture and storage (CCS)". She added that "if nuclear power and CCS are more limited in their expansion, then renewables would need to generate up to 80% of global electricity".

Other roadmaps have also been published recently, with IEA estimates for the capital costs of low-carbon technologies included in its Energy Technology Perspectives 2014: Harnessing Electricity's Potential. The IEA estimate for nuclear installed costs ($4,900/kW) are somewhat lower than the UK estimate of £4200/kW ($6,720/kW) for Hinkley Point C. This project has now secured state aid funding from the European Commission, although the decision may be subject to legal challenge. The electricity price will be $148/MWh. The EC decision was surprising, as its original assessment was somewhat critical, voicing "doubts on the robustness of the cost of capital, the discount rate, and ultimately on the return (the developer) is allowed to make through the provision of aid".

The IEA capital cost estimates suggest nuclear will fall by 9% in 2015-2030 and offshore wind by 27%. As both technologies are "capital intensive" - capital cost repayments being the biggest contribution to electricity generation costs - electricity costs will fall by roughly the same amount. This would bring offshore wind costs down to $130/MWh, slightly below nuclear.

The installed costs of solar photovoltaics will continue to fall rapidly, according to the IEA projections. Utility-scale projects next year are likely to cost around $1,900/kW, falling to $1,250/kW by 2030 and $900/kW by 2050. Onshore wind costs, by contrast, fall quite slowly, from $1,500/kW in 2015 to $1,200/kW in 2050. As the productivity of PV - in kilowatt hours per installed kilowatt per year - is roughly half that of onshore wind, PV installed costs need to be about half those of onshore wind for the solar technology to deliver electricity at the same price. By 2050, therefore, PV electricity costs in sunny climes may undercut wind, but the latter will tend to be the cheaper technology in most locations.

At a glance — This month's report conclusions

US offshore wind market and economic analysis; 2014 market assessment Offshore wind project costs may be stabilising and by 2018 overnight costs for a 500MW wind farm are likely to be around $5,700/kW.

International Energy Agency Energy Technology Perspectives 2014 Offshore wind costs may fall to $2,800/kW by 2030. Offshore electricity costs may undercut nuclear by this time. Onshore wind costs will fall slowly but electricity generation costs will still be less than those of solar PV in 2030.